U.S. Securities and Exchange Commission Washington, D. C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commission file number 0-2054 TSI, Inc. (Exact name of small business issuer as specified in its charter) Montana 81-0267738 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 128 Second Street South, Great Falls, Montana 59405 (Address of principal executive offices) (406) 727-2600 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding at March 31, 2003 $.05 Par Value Common Stock 10,468,976 Shares Transitional Small Business Disclosure Format (Check One): Yes ; No X TSI, INC. INDEX MARCH 31, 2003 Page Number PART I Condensed Financial Statements: Balance Sheet - March 31, 2003 2 Statements of Income and Comprehensive Income - Three Months Ended March 31, 2003 and 2002 3 Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002 4 Notes to Financial Statements 5 Management's Discussion and Analysis of the Statements of Income 6 PART II Other Information 7 Signatures 8 Certifications 9-11 1 TSI, INC. CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2003 ASSETS Current Assets Cash $22,689,834 Marketable Securities, at Fair Value 1,830,127 Receivables, Net 118,859 Deferred Income Tax Asset 20,675 Total Current Assets $24,659,495 Other Assets Noncurrent Investments, at Fair Value 630,360 Other Assets 2,238 Property, Plant and Equipment, Net 676,150 Total Assets $25,968,243 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable and Accrued Liabilities $ 265,009 Income Taxes Payable 68,445 Due to Parent Company 447,750 Total Current Liabilities 781,204 Provision for Estimated Title and Escrow Losses 807,584 Minority Interests 393,337 Deferred Income Taxes 146,259 Excess of Fair Value of Net Assets Acquired Over Cost 13,700 Stockholders' Equity Common Stock, $.05 Par Value, 30,000,000 shares authorized, 10,468,976 shares isssued 524,157 Additional Paid-In Capital 22,165,957 Retained Earnings 974,884 Accumulated Other Comprehensive Income 183,653 Treasury Stock, at Cost (22,492) Total Stockholders' Equity 23,826,159 Total Liabilities and Stockholders' Equity $25,968,243 See Notes to Consolidated Financial Statements. 2 TSI, INC. CONSOLIDATED STATEMENTS OF INCOME and COMPREHENSIVE INCOME For The Three Months Ended March 31, 2003 and 2002 Operating Revenues $654,971 $556,982 Operating Expenses Salaries and Payroll Costs 231,006 $206,348 Depreciation 17,790 20,898 Other Expenses 287,367 155,783 Total Expenses 536,163 383,029 Amortization of Deferred Credit 2,055 2,055 Minority Portion Of (Income) Loss (1,839) (2,213) 119,024 173,795 Income Tax Expense (13,130) (55,700) Net Income 105,894 118,095 Other Comprehensive Income (Loss) Increase(Decrease) in Unrealized Holding Gains, Net of Income Taxes 17,330 43,470 Comprehensive Income (Loss) $123,224 $161,565 See Notes to Consolidated Financial Statements. 3 TSI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net Cash Provided By Operating Activities $157,562 $135,054 CASH FLOWS FROM INVESTING ACTIVITIES Cash Received on Sales and Redemptions of Property and Equipment -- -- Cash Purchases of Furniture and Equipment (14,206) (5,351) Cash Used For Purchases of Marketable Securities Available For Sale (1,012,610) (339,828) Cash Received on Dispositions of Marketable Securities Available for Sale 117,782 645,592 Net Cash Provided (Used) By Investing Activities (909,834) 300,413 CASH FLOWS FROM FINANCING ACTIVITIES Cash Purchases of Treasury Stock (1,700) (1,941) Cash Provided From Parent Company 105,857 151,150 Net Cash Provided (Used) By Financing Activities 104,157 149,209 NET INCREASE IN CASH (647,315) 584,676 CASH - BEGINNING OF PERIOD 23,337,149 22,140,919 CASH - END OF PERIOD 22,689,834 22,725,595 See Notes to Consolidated Financial Statements. 4 TSI, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 In the opinion of management, all adjustments necessary (consisting of only normal recurring accruals) have been made to the unaudited financial statements to present fairly the Company's financial position as of March 31, 2003 and the results of the Company's operations and cash flows for the three months ended March 31, 2003 and 2002. The results of operations for the three months ended March 31, 2003 and 2002 are not indicative of the results to be expected for the full year. The consolidated financial statements include the accounts of the company, its wholly owned subsidiaries and its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. M Corp, Great Falls, Montana, owns approximately 92% of the Company's issued and outstanding common stock. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115) effective January 1, 1994. In accordance with SFAS No. 115 the Company's portfolios, current and noncurrent, are carried at fair value in the Company's balance sheet at March 31, 2003. The net unrealized holding gain at March 31, 2003, net of the estimated income tax effects and minority interests in the unrealized holding gains, is included in Accumulated Other Comprehensive Income at March 31, 2003 in accordance with the provisions of Financial Accounting Standards No. 130. Sales to outside concerns, interest revenues and segment operating profit for the Company's reportable segments were as follows for the period ended March 31, 2003: Sales To Segment Outside Interest Operating Concerns Revenues Profit Financial Holding Company $ 10,905 $ 11,748 $(24,445) Title Insurance Operations 519,782 18,806 166,713 Rental Properties 93,370 -- (23,460) Consolidated $ 624,417 $ 30,554 $ 118,808 5 TSI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE STATEMENTS OF INCOME MARCH 31, 2003 A summary of the period to period changes in items included in the statements of income is shown below. COMPARISON OF Three Months Ended March 31, 2003 and 2002 Increases (Decreases) Revenues $ 97,989 17.6% Operating Expenses $ 153,134 39.9% Net Income $ (12,202) (10.3%) Revenues increased $97,989 in the first quarter of 2003 as compared with the first quarter of 2002 due primarily to an increase in title revenue of $188,527 (51.5%) and losses in security sales of $61,286 during first quarter 2003. Other factors include: decrease in rent of $8,121 (7.9%), a decrease in interest and dividends of $34,871 (40.9%), and an increase in other revenues of $13,740 (3.2%). Operating expenses increased $153,134 during the first quarter 2003 as compared with the first quarter of 2002, due to an increase in salaries of $24,658 (11.9%), a decrease in depreciation of $3,108 (14.9%),and an increase in other expenses by $131,584 (107%). The provision for income tax expense decreased by $42,569 (76.4%) in the first quarter of 2003 as compared with the first quarter of 2002. 6 TSI, INC. PART II OTHER INFORMATION MARCH 31, 2003 ITEM 1 LEGAL PROCEEDINGS None ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3 DEFAULTS UPON SENIOR SECURITIES None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K None 7 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TSI, INC. Registrant Date: May 30, 2003 s/Angela Semenza Angela Semenza Assistant Secretary-Treasurer Date: May 30, 2003 s/D. Mellinger D. Mellinger, Accountant 8 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED UPRSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of TSI, Inc. on Form 10-QSB for the period ending March 31, 2003 as filed with the Securites and Exchange Commission on the date hereof (the "Report"), I, Paul J. McCann, Representative of Diversified Realty, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Subanes- Oxley Act of 2002, to the best of my knowledge and belief, that; 1. The report fully compiles with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of TSI, Inc. Date: May 30, 2003 s/Paul J. McCann Paul J. McCann, Representative 9 CERTIFICATION I, Paul J. McCann, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of TSI, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial inforamtion included in the quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of TSI, Inc., as of, and for, the periods presented in this quarterly report. 4. TSI, Inc.'s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Eschange Act Rules 13a-14 and 15d-14) for TSI, Inc. We have: a. designed such disclosure controls and procedures to ensure that material information relating to TSI, Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared. b. evaluated the effectiveness TSI, Inc. disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 10 CERTIFICATION - continued 5. TSI Inc.'s other certifying officers and I have disclosed, based on our most recent evaluation, to TSI, Inc. auditors and the audit committee of TSI, Inc. board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect TSI Inc.'s ability to record, process, summarize and report financial data, and I have identified for TSI, Inc.'s auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in TSI Inc.'s internal control; and 6. TSI, Inc.'s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Based on my knowledge all of the above is true and correct to the best of my belief, especially paragraph 3 above. I am not familiar with all SEC rules and procedures and have relied and am relying on our staff and accountants in that regard. Date: May 30, 2003 s/Paul J. McCann Paul J. McCann 11